Sun Life, Industrial Alliance Beat 3Q Expectations
November 03 2010 - 6:21PM
Dow Jones News
Two of Canada's top-four life insurers posted
better-than-expected third-quarter results Wednesday from rising
equity markets and managing their exposure to rock-bottom interest
rates.
Sun Life Financial Inc. (SLF, SLF.T), which owns Boston-based
MFS Investment Management, swung to a profit of C$453 million, or
79 Canadian cents a share, from a year-earlier loss of C$140
million, or 25 Canadian cents. Per-share results handily surpassed
analysts' expectations of 61 Canadian cents, according to Thomson
Reuters.
Industrial Alliance Insurance and Financial Services Inc.'s
(IAG.T) net income rose 9% to C$64.7 million, or 78 Canadian cents
a share, its strongest quarterly result since the 2008 global
financial crisis. The life insurer topped the mean estimate of 75
Canadian cents from a Thomson Reuters survey.
Both companies benefited from higher equity markets, as the
S&P/TSX and the S&P 500 rallied 9.5% and 10.7%,
respectively, in the quarter ended Sept. 30, and from their
wealth-management divisions. Both life insurers also said they took
steps to mitigate the earnings impact of low interest rates, which
had little impact on their results. Life insurers are forced to
build up their reserves to cover long-term obligations on products,
such as annuities, when equities or interest rates fall.
Manulife Financial Corp. (MFC, MFC.T), the most sensitive to
equity-market volatility and low interest rates because it sold
more long-term guaranteed products, releases its results Thursday,
while Great-West Lifeco Inc. (GWLIF, GWO.T), the least earnings
sensitive, reports next week.
For the past year, investors have been on a rollercoaster with
Manulife, as its earnings fall and rise with the markets as it
marks to market investments against its long-term obligations.
"The focus will be on Manulife. If they can straighten out, the
whole industry will have a big sigh of relief," said John Kinsey, a
portfolio manager at Toronto-based Caldwell Investment Management
Ltd., which manages assets of C$1 billion, including life-insurance
stocks.
"People are looking from them to get the feeling that the write
offs are over, and that they've done all they're going to do with
their hedging and are comfortable with where they are now rather
than the confusion that we've seen for the last year," he said.
Toronto-based Sun Life also attributed its improved performance
to changes in its actuarial assumptions. Like Manulife, Sun Life
generally reassesses its assumptions in the third quarter each
year. Concern about the U.S. commercial-mortgage market prompted
Sun Life to raise its mortgage sectoral allowance by C$57 million,
which reduced net income by C$40 million, it said in a
statement.
Sun Life said the net impact from interest rates in the third
quarter "was not material" on its third-quarter results because of
its use of interest-rate swaps.
Assets under management rose 10% to C$455 billion, primarily
from rising equity markets and the sale of more mutual and managed
funds. Total assets under management at MFS were US$204
billion.
The company's U.S. division also returned to profitability
compared to the prior quarter and the year-earlier quarter, it
said.
Quebec City-based Industrial Alliance recorded its
fourth-straight quarter of solid top-line growth, with premiums and
deposits increasing 15% to C$1.4 billion and the value of new
business jumping 44% to C$41.4 million.
The life insurer appears on track to surpass its 2007 record.
For the nine months, premiums and deposits were up 31% over 2009
and 7% over 2007, fuelled primarily by its individual
wealth-management division, which is benefiting from stock-market
gains and high net sales, it said in a statement. Assets under
management and administration grew by 7% to C$64.1 million at
quarter end.
The company, which plans to finalize changes to its actuarial
assumptions by the end of the fourth quarter, said it is "confident
at this time" that it won't have any significant impact on its
fourth-quarter results.
With investors' focused on the sector's sensitivity to
capital-market fluctuations, Industrial Alliance said it is taking
steps to reduce its sensitivity to interest rates, including a 5%
increase in the proportion of stocks backing long-term liabilities.
If these initiatives had been in place at Sept. 30, it would be
able to absorb a 15% decline in equity markets and that provisions
for future policy benefits wouldn't have to be strengthened as long
as the S&P/TSX remains above 10,500 points, it said in a
statement.
Industrial Alliance also said it implemented a hedging program
to manage the equity risk related to its guaranteed annuity
product, effective Oct. 20. The guaranteed annuity book represents
about C$1.5 billion of assets under management, including C$900
million in equities.
-By Caroline Van Hasselt, Dow Jones Newswires; 416-306-2023;
caroline.vanhasselt@dowjones.com